Using a Cartoon Video to Explain Government in Less than 3 Minutes

Sometimes during speeches, when explaining why politicians shouldn’t double tax income that is saved and invested, I ask the audience whether it would make sense to harvest apples by cutting the branches off of trees filled with ripe fruit.

In every audience (at least when I’m not talking to politicians), people instinctively understand that this would be stupid. Cutting off the branches, after all, would reduce the crop in future years. This helps them realize why it is so short-sighted to use tax policy to penalize the capital formation that generates future income.

This new video is designed to make a broader point about the greed of the political class, but you’ll see why I thought about my story about taxation and the apple tree. (warning: one F-word at the end)

4 Responses

First, your arguing for favorable tax treatment of investment income (with ‘favorable’ defined as a rate lower than for earned income) calls to mind Churchill’s quip and it undermines your objections to (others) tweaking the tax code to accomplish one thing or another.

Second, how is taxing investment income analogous to cutting off the branch? Isn’t the branch the enterprise that produces the leaves, and if so, doesn’t taking the leaves leave the branch intact, fully capable of producing another cycle of leaves?

Third, where is the double taxation? Corporations and their owners are not one and the same, the law treats them as two distinct entities, and not just for tax purposes. If the owners want to operate as a C-corp, that’s their choice, and it would be a nice case of chutzpah for them to invest in a company that is organized as a C-corp and then complain about the consequences of having done so.

Steve misses the loss on investments made due to the diminished returns (the confiscated leaves) to investors who invested expecting a return that the government eliminated after-the-fact. The loss also is a form of taxation. Imagine how such policies might affect future investment behavior and you begin to see the world a little bit more clearly.